27 September 2002 GST/HST Interpretation 35585 - Case #35585 -

I have reviewed your request for an opinion on the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the following products currently under audit. I would like to make the following comments

A supply of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages) is zero-rated (i.e., taxed at a rate of 0%) pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA). Certain food or beverages (e.g., carbonated beverages) are taxable at 7% (or 15% in participating provinces) because they are excluded from zero-rating by paragraphs 1(a) to 1(r) of Part III. For example, paragraph 1(e) of Part III excludes from zero-rating supplies of candies, confectionery that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, and including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners.

The terms "food" and "beverage" are not defined in the ETA. The CCRA considers that a product is a food or a beverage if an average consumer would recognize and purchase the product as a food or beverage in the ordinary course of buying basic groceries. Put differently, products would be considered to be a food or a beverage if they would be consumed by an average consumer when food or beverages are typically consumed, such as at mealtimes or for a snack. It is the CCRA's view that an average consumer would generally accept that a product in bar format was food.

Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. That is, food and beverages are consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment, rather than for therapeutic or preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial effects related to performance or physique. Therefore, products that are labelled, packaged or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product, for example, therapeutic or preventive effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages. Moreover, products that meet special dietary needs of certain segments of the population such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed by the average consumer as food or beverages.

Products commonly described as "dietary supplements" are not considered to be food, beverages or ingredients, and are taxable at 7% GST or 15% HST. Such products are generally made from synthetic or natural ingredients that are ingestible and that may be nutritive. They are available in a variety of formats: solids, (including powders), pills, capsules, gels, liquids (including oil) and tinctures. They may contain vitamins, minerals, fibre, protein, amino acids, fatty acids, enzymes, or compounds derived from plant or animal products. As mentioned earlier, these products are purchased and consumed for therapeutic or preventative purposes or to achieve specific beneficial effects.

It should be noted that products which qualify and are labelled as "nutritional supplements" or "meal replacements" pursuant to the Food and Drugs Act and Regulations (FDR) are considered food or beverages for purposes of section 1 of Part III of Schedule VI to the ETA. Moreover, they are not subject to the exclusions under paragraphs 1(a) to 1(r) of Part III and, therefore, are zero-rated.

Furthermore, the CCRA considers a product to be an ingredient if an average consumer would recognize the product as an ingredient into food or a beverage, and it is the view of the CCRA that an average consumer would consider a product to be an ingredient if the product added to flavour, texture or appearance of the final product; that is, if it was integral to the final product. As with food and beverages, it is also recognized that products that are consumed for their therapeutic, preventative, or performance or physique enhancing properties would not be recognized by an average consumer as ingredients. Moreover, in order to be regarded as an ingredient to a food or beverage, the final product, in and of itself, would be considered to be a food or beverage by the average consumer.

Finally, a product that is marketed for its beneficial effects, and that is added to a food or beverage simply as a means of consuming it, would not be considered by an average consumer as an ingredient simply because it is ingested in this manner.

If a product's tax status is in doubt, the CCRA will consider the manner in which the product is labelled, packaged, and marketed to determine its tax status. There are a number of factors that the CCRA considers in determining whether a product would be considered by an average consumer to be a food, beverage or ingredient. The following are some of the factors to be considered. For greater detail, please refer to GST/HST Policy Statement P-240, Application of GST/HST to Products Commonly described as "Dietary Supplements".

Labelling

•   Labelled as a supplement

•   Claims that the product has a therapeutic or preventative effect, enhances mental or physical performance, enhances physique, or promotes weight loss.

•   Emphasizes a particular nutrient or ingredient found in the product either through the products name or otherwise identified on the label.

•   Restrictions on consumption or warnings to who should not consume the product.

Packaging & Format

•   Packaged in pill, tablet or capsules.

•   Packed in formats not usually associated with foodstuffs (e.g. eye droppers).

•   The same product is presented in several different formats (i.e., pill, powder, or liquid). Where the focus of consumption is on the benefits of the product, the format of the product is more a matter of personal preference for ease of consumption.

Marketing

•   Advertising in print or electronic media that includes a claim related to purported beneficial health effects.

•   Product is placed in retail environments or direct sales catalogues with other non-food items (e.g. non-prescription drugs or cosmetics)

From the documents you enclosed with your letter as well as additional product information XXXXX we have the following comments.

1. XXXXX (Product #1)

Product #1 is an unflavoured powdered XXXXX.

Product information indicates that the XXXXX should not only be considered a conditionally essential amino acid but also a conditionally essential bodybuilding supplement. It indicates that XXXXX plays a key part with the branched chain amino acids in muscle energy metabolism and the over training syndrome of athletes. Furthermore, the product information promotes Product #1 as being the anti-catabolic nutrient and suggests that consuming this product could impart muscle sparing and eventually add up to muscular gains. The exact amount of XXXXX needed by bodybuilders has not been scientifically established. However, the manufacturer suggests ingesting XXXXX

2. XXXXX (Product #2)

Product #2 is a powder consisting of XXXXX available in Chocolate, Strawberry and Vanilla flavours.

According to product information, Product #2 is a high quality concentrate containing a high concentration of branched chain amino acids and a remarkably high biological value and is the most economical XXXXX you can use for heavy duty training. The manufacturer suggests that as a dietary supplement, add 1 scoop to 4 oz. of skim milk or water or for a high protein shake, try 2 scoops in 8 oz. of skim milk.

3. XXXXX (Product #3)

Product #3 is a powder consisting of XXXXX.

According to the product information, Product #3 is the preferred type of XXXXX used for supplementation and is the number one product for gaining size and muscle strength. It states that the XXXXX used in Product #3 is manufactured by XXXXX who manufacture XXXXX under XXXXX. The manufacturer suggests that as a dietary supplement, take XXXXX.

4. XXXXX (Product #4)

Product #4 is a powder consisting of XXXXX.

Product information indicates that Product #4 is the next level in high energy supplements that should lead to increased strength, endurance, fat free mass, and muscle recovery. It further indicates that XXXXX and XXXXX work to create a muscle cell volumizing effect which is thought to promote protein synthesis and XXXXX provides the building blocks for the formation of ATP (adenosine triphosphate) and extra phosphate for the recycling of ATP. The manufacturer suggests that the most proficient way to utilize Product #4 is by taking XXXXX[.]

5. XXXXX (Product #5)

Product #5 is a powder consisting of XXXXX available in chocolate and vanilla flavours.

According to the product information, Product #5 is the XXXXX on the sports supplement market based upon XXXXX type, purity, processing and the addition of XXXXX. It also maintains that due to the fact that Product #5 has a very high biological value and because it contains the highest ratio of essential amino acids and branched chain amino acids per serving, it has set new standards that other XXXXX should be using.

6. XXXXX (Product #6)

Product #6 is a powder consisting of XXXXX.

According to the product information, Product #6 is the preferred type of XXXXX used for supplementation. It advises that the effectiveness of XXXXX can be greatly enhanced with the addition of XXXXX resulting in increased strength and contributing to muscle gain and endurance.

7. XXXXX (Product #7)

Product #7 is a XXXXX bar available in Peanut Butter, Chocolate, XXXXX, XXXXX flavours.

According to the submitted material as well as information XXXXX all of the above-described powdered products (i.e. Products #1 through #6) are considered to be dietary supplements and are taxable at 7% GST (or 15% HST, as applicable).

The product information describes Product #7 as closely resembling a meal replacement. Please note that only products that meet the requirements of section B.24.003 of the Food and Drugs Regulations are zero-rated as meal replacements.

Our review of the material submitted on Product #7 leads us to conclude that the product, in bar form, is taxable at 7% GST (or 15% HST, as applicable) because it is excluded from zero-rating pursuant to paragraph 1(e) of Part III of Schedule VI to the ETA.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9218.

Kevin W. Smith
Goods Unit
General Operations and Border Issues Division
Excise & GST/HST Rulings Directorate